The Federal Reserve is responsible for conducting monetary policy in the United States. During economic downturns, the Fed employs expansionary monetary policy tools to stimulate the economy.
Some key points about the Federal Reserve and expansionary monetary policy:
- The Fed aims to promote maximum employment and stable prices. During recessions, it uses expansionary policy to boost aggregate demand and pull the economy out of contraction.
- Common expansionary policy tools include lowering interest rates and increasing the money supply. By lowering rates, the Fed makes borrowing cheaper which encourages more spending, investment, and economic activity.
- Increasing the money supply involves actions like quantitative easing where the Fed purchases assets like Treasury securities. This puts more money in circulation